Don't blame technology

Research argues downloads do not hurt sales

Koleman Strumpf, Koch Professor of Economics, co-authored a paper in the Feb. 14 issue of the Journal of Political Economics that states downloads do not affect music sales.

Technology may be changing the way people listen to and store their music, but a KU professor argues that downloads are not to blame for years of declining album sales.

Koleman Strumpf, Koch Professor of Economics, argues that downloaded songs do not automatically equate to lost sales. His argument was published in the Feb. 14 issue of the Journal of Political Economy.

Strumpf and co-author Felix Oberholzer-Gee of Harvard University analyzed millions of downloads in late 2002 and compared them to album sales.

"We match an extensive sample of downloads to U.S. sales for a large number of albums," the authors wrote, "While file sharers downloaded billions of files in 2002, the consequences for the industry amounted to no more than 0.7 percent of sales … Downloads have an effect on sales that is statistically indistinguishable from zero. Our estimates are inconsistent with claims that file sharing is the primary reason for the decline in music sales during our study period."

In their analysis of downloads and record sales during the four-month period, Strumpf and Oberholzer-Gee found that downloads and sales of songs and albums were both proportionally high when the work was popular.

"We found that there is a positive relationship between downloads and sales," Strumpf said. "We did not find examples of songs that were downloaded frequently but failed to sell."

The researchers then set out to find if there were situations in which a music file's availability increased downloads. They found that during the period, about one of every eight music files downloaded in the United States came from Germany. When German students were on vacation from school, the availability of music files increased, as did downloads.

"I'll argue, though, that has very little to do with whether an album will sell or not," Strumpf said.

"Those are the kinds of things that drive economists batty"
-Koleman Strumpf

The authors studied albums that were released during vacation weeks and others that were not. The sales figures showed very little difference.

Strumpf said he became interested in the subject in 1999 when popular file-sharing network Napster gained prominence. The subsequent lawsuits and attempts to fight the practice of downloading by the record industry caught his attention. Claims that downloaders were directly affecting albums sales often struck him as faulty in economic logic. People often assumed that because Napster's arrival and a sales slump in the music industry arrived at nearly the same time, there must be a causal impact of downloads on sales.

"Those are the kinds of things that drive economists batty," Strumpf said.

He was also driven to study the topic empirically, as previous data relied heavily on surveys of consumer behavior. Such material must be looked at skeptically, as people are likely to be dishonest in a survey in which they are discussing behavior for which they could potentially be prosecuted, Strumpf said.

A number of other factors are often overlooked as potential causes of declining sales, he added. Radio conglomerate Clear Channel rose to prominence around the same time, limiting the variety of music played on commercial airwaves. Retail giants such as Best Buy and Wal-Mart also increased their presence in the music market, changing the way people bought music.

Strumpf also said the record industry's lack of creativity may have contributed to declining sales. There has not been a truly new musical genre since the rise of boy bands and teen-oriented pop in the late '90s, he said. The subsequent years of homogenous music could have contributed to consumer apathy.

Not surprisingly, when the study was first circulated in 2004, it was criticized heavily by the recording industry. Strumpf and Oberholzer-Gee have spent the past two years addressing the criticisms and re-analyzing the data to confirm their findings. They stand by the findings.

Not all of the feedback was negative, though. Strumpf said they heard from hundreds of consumers who placed the blame for slumping album sales squarely on the shoulders of the recording industry.

"That astonished me," Strumpf said of the reaction, "that an industry whose product is so much fun, I mean, everyone likes music, could have generated that much animosity."

To determine what has caused the decline in album sales, which fell 25 percent between 2000 and 2005, Strumpf said, a researcher would have to know how consumers would behave if file sharing did not exist. The question of whether or not people who download music would buy it would be central to such a determination.

Strumpf is in the early stages of another project with Oberholzer-Gee to study the effects of downloading movies on box office revenue. They are collecting statistics for movie downloads from around the world for a two-year period.

"This is definitely something we're interested in. We're also glad it has such wide interest outside of academia," Strumpf said.